Sellers should consider all the variables when negotiating an offer. Thanks to Jim Randal of CT for an informative post for all sellers.
I've done real estate transactions for 25 years - as an attorney, broker and principal. And there is one negotiating mistake that I have seen over and over: People negotiating with the wrong party.
A common negotiation is between the seller and buyer of a house. The seller wants to sell his house, and the buyer want to buy a house (notice: 'a house,' not 'the house').
Hypothetically, let's say the seller asks for $1 million, but is willing to accept $950,000. The buyer offers $900,000. The seller counters with $975,000. The game is on.
Ninety percent of sellers make the following mistake: the universe shrinks to just this prospective buyer. The seller (for no good reason) believes that since the buyer offered $900,000, he's willing to go to $950,000.
From this point on, the seller is negotiating with the wrong party.
To win, the seller should consider the next buyer.
In a negotiation, each person must consider the possibility that the other party may walk away. What is the alternative? Roger Fisher and William Ury write about this in their best-selling book, Getting to Yes (Penguin, 1981).
"What is your BATNA – your Best Alternative to a Negotiated Agreement?"
In other words, what is the seller's position if the original buyer goes away?
Will there be another buyer at that price? Or will it be lower? Will something else materialize soon? Or will it come along in several months or more?
Our hypothetical seller should analyze the $900,000 offer against what would happen if the negotiation dissolved altogether for any reason.
Few people think of a negotiation that way. Most make it a personal battle with the other party. It becomes a game of chess - or will. This is a mistake.
I cannot count the number of times my client – seller, buyer, landlord or tenant - has said: "Jim, tell them my offer is $X. If they don't want it, they can go pound sand."
So I tell the other party, "It's $X or go pound sand."
And the other party goes and pounds sand.
Two days later, my client will call: "So where's the offer?"
"He chose to pound sand," I explain.
"Gee, I wasn't serious," my client responds. "See if he will meet me in the middle."
But, it's too late.
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Funny, I just read this same article on another blog here on activerain. I still don't consider negotiations as a battle. Negotiations is more like asking the right questions to get to the goal of everyone wins. I have rarely lost a contract, or not had one put together when I can find out what is the most important for each party and how to make it work. It's much more than price.